Australia – More Work to do on AML

Published by Joyce Moullakis, Australian Financial Review –
More work to do on anti-money laundering after CBA AUSTRAC settlement: experts

Australia remains well behind the United Kingdom and the United States on tackling money laundering and other criminal behaviour despite upping its game after a landmark Commonwealth Bank of Australia legal settlement.

The Australian Financial Review spoke to numerous experts, who say Australia is still lagging when it comes to tackling problems relating to money laundering and other criminal behaviour.

David Chaikin of the University of Sydney’s business school believes while AUSTRAC’s action against CBA and ASX-listed Tabcorp has shifted the dial, regulators, banks and other companies need to more closely address the potential threat as criminals attempt to stay ahead of technology advancements.

“In Australia there is not enough confiscation, prosecution and enforcement,” he said.

“There is a lot of work being done in reg tech but we shouldn’t assume that is going to provide a magic solution.

“All the banks have algorithms with monitoring technology but they are still pretty crude.”

Dr Chaikin said “there is obviously a catch up” for Australia and the nation’s banks and financial services sector.

“AUSTRAC on the intelligence side are very good and are acknowledged as being a world leader in collecting and analysing information and data,” he said.

“In terms of a regulator they have been criticised over a long period of time on enforcement and not going after the big institutions.”

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Last month CBA settled legal proceedings initiated by AUSTRAC over allegations including lax anti-money laundering protections and reporting, and made further admissions about the inadequate processes.

CBA agreed to pay $702.5 million to settle the matter and agreed to new breaches of the Anti-Money Laundering and Counter-Terrorism Act (AML-CTF) taking the total number of contraventions to 53,750.

“The UK is deemed to be the world leader in in terms of anti-money laundering and in the UK the regulator has more teeth. AUSTRAC are late to the party,” Roger Carson, co-founder of know your customer automation group encompass, said.

“The real issue isn’t ticking the box. Close to $US2.5 trillion in illicit money flows through the financial system each year and less that 1 per cent of this is believed to be detected … people should sit up and take notice of that.”

KPMG forensic partner Gary Gill said AUSTRAC’s action against Tabcorp and CBA has created a “change in mindset” in this market.

“The UK and US are probably still somewhat ahead of Australia but the gap has changed,” he said.

“They [AUSTRAC] are now starting to get more aligned with other regulators around the world … and largely because of what’s happened there is more of a fear factor” for Australian companies.

In April, AUSTRAC chief Nicole Rose highlighted the agency’s collaboration and co-operation with the banks and financial sector.

“My nirvana, if you like, is to be in such close contact with particularly the four banks that any issues we have we are discussing early on and regularly so that there are no surprises,” she said at the time.

In other industries, Ms Rose noted the importance of information sharing and said AUSTRAC was “ramping up” education around money laundering and related areas in the pubs and clubs and casino sector, and among real estate agents, lawyers and accountants.

Collaboration with banks has increased via the Fintel Alliance, created a year ago with joint funding from AUSTRAC and the major banks to improve the sharing of security threat information.

“That is one mechanism trying to be used to overcome a bottleneck of information and help to do the job better,” Dr Chaikin said, noting though that more “preventative action” was required.

“The [criminal] money chains are getting longer,” he said, noting a string of lessons for Australian companies stemming from the CBA/AUSTRAC case which focused on the bank’s automatic teller machines being used to launder drug money out of the country.

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“Blind Freddie would have told you there would have been anti-money laundering risks where there are large amounts of money being deposited.”

The risks around anti-money laundering are also heightened by the advent of real time payments in Australia and the rise of digital currencies, which Dr Chaikin says will make it more difficult for the federal police to freeze fund flows in a timely manner.

Mr Carson said that, while the local banks were “now rushing” to address and remediate new risks, hiring more compliance people was not a “sustainable solution”.

“Australian banks are good at onboarding customers but a customer’s risk profile may change over the course of a relationship, so there is also the question of continuously monitoring existing customers to identify and promptly remediate potential new risks,” he said.

“This is currently a very manual process, making it slow and costly. As a result, firms are exposed to unknown risks due to a growing backlog of outdated customer information.

“We believe that technology, specifically automation, is the only way regulated firms can manage the exploding costs of compliance while improving the effectiveness of their AML programmes.”